Intifada has devastated Gaza, West Bank's economies

Mislam Alshwa, a butcher in Gaza City's central market, has seen his sales plunge by 90 percent since the intifada began in the fall of 2000. That's because hardly anyone is being allowed to cross over into Israel to work at a time of heightened tension. Israel has taken to importing Thai and Filipino laborers to replace the Palestinians it once hired.

"Things won't get better until the borders are open so that people can earn money again," he said on a recent Saturday.

One of his few customers that day, Abu Ahmeed, didn't quite agree.

"Why should we work in Israel?" he asked. "The Palestinian state will be a reality soon, and we can build factories here."

Ahmeed works for the Palestinian Authority, which explains why he can still buy meat.

Both men may be right -- Ahmeed in believing that a Palestinian state is inevitable, and Alshwa for sensing that it may not be the answer to his business woes.

The two-state solution to the Israeli-Palestinian conflict, once the idealistic aspiration of peace-minded people on both sides, is now seen as the lesser-evil option by mayhem-weary realists. The prevailing Israeli sentiment runs something like this: Take your territories and let us wall them off so we never have to deal with each other again.

Though understandable, that sentiment could prove a dangerous fantasy for Israelis. Despite the seeming tidiness of a two-state solution, Palestinians and Israelis will continue to live in a shared economy. Israel will only undermine its own security if it ignores this fact.

Gaza offers a cautionary tale of what a hopeless Palestinian state would be. Sealed off, the Gaza Strip has become an increasingly radicalized prison of 1.5 million inmates; it is run by Hamas and other terrorist groups. The percentage of Gazans in poverty -- defined as a daily household income of less than US$2.10 -- has exploded to 80 percent from 20 percent in less than four years.

The territory is also a microcosm for everything about the Israeli-Palestinian conflict that outside observers find maddening. Gaza is hardly in dispute, after all. Nearly three-quarters of Israelis -- including Prime Minister Ariel Sharon -- are eager for Israeli troops and the 7,500 Jewish settlers there to withdraw.

But on May 2, a minute slice of Israel's electorate managed to block Sharon's withdrawal plan in an ill-conceived Likud Party referendum. Turnout was light, partly because many would-be "yes" voters were repulsed by the brutal killing of a Jewish settler and her four children in Gaza. Extremists on both sides once again hijacked the debate.

Since then, at least a dozen Israeli soldiers and close to 100 Palestinians have died in some of the most ferocious fighting seen in recent years. Sharon has reiterated his determination to leave Gaza, and he is expected to have his cabinet vote on Sunday on a revised withdrawal plan.

Even if an Israeli withdrawal does eventually take place, once-optimistic proposals for the Israeli and Palestinian states to form a single customs union and a common market have been shelved. Instead, Israel is intent on erecting a massive wall that offers Palestinians an economic future as bleak as the present.

"No modern economy has ever gone through as devastating a recession as the West Bank and Gaza have," said Nigel Roberts, the West Bank and Gaza director for the World Bank.

The effects of the intifada wiped out almost 40 percent of the per-capita domestic product. Private investment plummeted to less than US$100 million in 2002 from nearly US$1.5 billion in 1999.

The number of Palestinian migrant workers in Israel has declined to fewer than 50,000 from some 150,000 on the eve of the latest intifada.